CHAPTER 1 BACKGROUND HONG KONG S DUAL-TRACK HEALTHCARE SYSTEM 1.1. Hong Kong has a dual-track healthcare system by which the public and private healthcare sectors complement each other. The public sector is the predominant provider of secondary and tertiary healthcare services. Around 88% of in-patient services (in terms of number of bed days) are provided by public hospitals. Public hospitals provide about 27 400 hospital beds, accounting for about 88% of total hospital beds. Apart from hospital services, the public sector also provides medical treatment and rehabilitation services to patients through specialist clinics and outreaching services. The public healthcare system provides the Hong Kong population with equitable access to healthcare service at highly subsidised rates (at a flat rate of $100 per day of hospitalisation in most circumstances). As the safety net for all, the public sector focuses its services on four target areas: (a) acute and emergency care; (b) lower-income and under-privileged groups; (c) illnesses that entail high cost, advanced technology and multi-disciplinary professional team work; and (d) training of healthcare professionals. 1.2. The private sector complements the public healthcare system by offering choice to those who can afford and are willing to pay for healthcare services with personalised choices and better amenities. It provides a variety of choices of healthcare services, including primary care (about 70% of out-patient services in terms of attendance) as well as specialist and hospital care. There are 11 private hospitals in the private sector providing about 3 900 beds in total. 1.3. In terms of financing source, according to Hong Kong s Domestic Health Accounts 2010/11, total healthcare services were funded roughly equally by public and private sources at $45.5 billion and $47.9 billion respectively. Private healthcare services were mainly financed by household out-of-pocket expenditure (65%) and insurance pay-out (30%, including individuallypurchased private health insurance (PHI) and employer-provided PHI) (Figure 1.1). Public healthcare services were almost fully financed by public funding from Government budget 93% of the cost was financed by Government funding. 26
Figure 1.1 Expenditure on Public and Private Healthcare Services by Financing Source in 2010/11 Notes: * Smaller than 0.5%. 1 Include expenditure on civil servant and Hospital Authority staff medical benefits. 2 Includes medical benefits not in the form of medical insurance provided by private companies/organisations, and excludes expenditure on civil servant and Hospital Authority staff medical benefits. Source: Hong Kong s Domestic Health Accounts 2010/11 NEED FOR HEALTHCARE REFORM 1.4. The dual-track healthcare system has served us well over the years and it is the Government s policy to maintain and strengthen the dual-track healthcare system. Nevertheless, as with other advanced economies, Hong Kong is facing a number of major challenges to our healthcare system. First, longevity brings with it the challenges of an ageing population and a rising demand for healthcare services. According to the statistics compiled by the Census and Statistics Department (C&SD), the proportion of elders in our population is about one in seven in 2014. This figure will become about one in three by 2041 (Figure 1.2). In particular, in about two to three decades time, we will witness the emergence of middle class elderly who will be more affluent, better educated and have higher expectation of healthcare services. Second, lifestyle-related diseases are now more common as our society has become more affluent. Third, advances in medical technology, while lengthening lifespan and improving our quality of life, contribute to the escalating medical costs that we have witnessed in recent decades. 27
Figure 1.2 Ageing Population Source: Mid-year population estimates for 2014 and projected mid-year population for 2015-2041, C&SD 1.5. Confronted by these challenges, the Government has substantially increased its investment in public healthcare over the years. The annual Government recurrent expenditure on medical and health services has reached $52 billion for 2014-15, accounting for 17% of total recurrent expenditure of the Government. In terms of public health infrastructure, the construction of Tin Shui Wai Hospital and Hong Kong Children's Hospital has commenced. The preparatory work for the expansion of United Christian Hospital and the redevelopment of Kwong Wah Hospital and Queen Mary Hospital have also started. The Government also plans to seek the Legislative Council s funding approval for the redevelopment of Kwai Chung Hospital and the expansion of Hong Kong Red Cross Blood Transfusion Service Headquarters. The Government would spend about $55 billion on these projects as part of an ongoing effort to improve public healthcare facilities and provide about 1 400 additional hospital beds. Besides, the Government is conducting strategic studies on the construction of an acute general hospital in the Kai Tak Development Area. In the longer term, the Hospital Authority (HA) will start planning for the redevelopment of Queen Elizabeth Hospital and phase two redevelopment project of Prince of Wales Hospital to address the community's long-term demand for healthcare services. 1.6. In addition, the Legislative Council Finance Committee approved in December 2013 a one-off grant of $13 billion for the HA to implement minor improvement and planned maintenance works programmes for the next ten years. This covers the renovation of over 500 wards in 34 hospitals; provision of around 800 additional beds in 11 hospitals; expansion of operating theatres, accident and emergency departments, and general out-patient clinics; 28
and setting up additional endoscopy centres and ambulatory facilities, etc. We treasure public healthcare as the cornerstone of our healthcare system and safety net for all Hong Kong people. We will continue to strengthen our commitment to the public healthcare system. 1.7. Notwithstanding the Government s commitment to public healthcare, it is necessary to identify suitable measures to improve the quality of our healthcare services and to readjust the public-private balance, so as to enhance the long-term sustainability of our healthcare system. 1.8. Multiple rounds of public consultation on healthcare reform had been conducted since the 1990s to identify ways to reform the healthcare system through recalibrating the balance of the public-private healthcare sectors, including Towards Better Health (1993), Improving Hong Kong s Healthcare System: Why and For Whom (1999) and Lifelong Investment in Health (2000). Various proposals were put forth, including capping Government subsidy or increasing user fees of public healthcare services, social health insurance, medical savings account, promoting integrated healthcare and collaboration between the public and private sectors and between primary, secondary and tertiary care, etc. While the public was generally supportive of the need for reform, opinions on different reform options varied and no general consensus was reached. 1.9. In 2005, the Health and Medical Development Advisory Committee (HMDAC) issued a discussion paper Building a Healthy Tomorrow, making a number of recommendations covering various aspects of the healthcare system, including primary medical care, hospital services, tertiary and specialised services, elderly, long-term and rehabilitation care services, integration between the public and private sectors, and infrastructural support. Based on the recommendations by the HMDAC, the Government published the Consultation Document Your Health, Your Life in March 2008 to initiate a two-stage public consultation on healthcare reform, with a view to engaging the community and stakeholders and building consensus to improve the sustainability of our healthcare system. HMDAC Chaired by the Secretary for Food and Health and comprising mainly non-official members, the HMDAC was tasked to assist the Government in identifying solutions to challenges faced by our healthcare system, including an ageing population and escalating healthcare costs due partly to technology advancement. Its terms of reference included reviewing and developing service models for healthcare in both the public and private sectors; and proposing long-term healthcare financing options. 29
FIRST STAGE PUBLIC CONSULTATION ON HEALTHCARE REFORM (FIRST STAGE CONSULTATION) 1.10. During the First Stage Consultation, the Government consulted the public on healthcare service reforms proposals, including enhancing primary care, promoting publicprivate partnership, developing electronic health record sharing, and strengthening public healthcare safety net. At the same time, the Government also proposed to reform the current healthcare financing arrangements to complement healthcare service reforms. Six supplementary healthcare financing options were put forth, including (a) social health insurance (mandatory contribution by the workforce); (b) out-of-pocket payments (increase user fees for public healthcare services); (c) medical savings accounts (mandatory savings for future use); (d) voluntary PHI; (e) mandatory PHI; and (f) personal healthcare reserve (mandatory savings and insurance). 1.11. The consultation came to an end in June 2008. There was broad consensus in the community to take forward service reforms, although divergent views were expressed on the supplementary financing options. In general, the public expressed reservations about mandatory financing options as solutions to address the long-term sustainability of healthcare financing. Relatively more people expressed a preference for voluntary PHI as a supplementary means of financing healthcare, which would offer them a choice for personalised healthcare services. The tax-funded public healthcare system should continue to offer essential healthcare as a safety net for the whole population. 1.12. At the same time, many respondents pointed out various shortcomings they perceived of health insurance currently offered in the market, such as exclusion of preexisting conditions, no guarantee on renewal of policies, inadequate benefits coverage, disputes over insurance claims, etc. On private healthcare services, some recognised that there were significant uncertainties and financial risks for using them due to inadequate price transparency and predictability, rendering many who could have afforded private healthcare services to resort to the public healthcare system. 30
HONG KONG S HEALTH INSURANCE MARKET 1.13. Based on the consultation outcome, we proceeded to develop possible policy options along the principle of voluntary participation. In developing a voluntary supplementary financing option, we came to realise that health insurance has the potential to play a more active role in financing health expenditure. According to Hong Kong s Domestic Health Accounts 2010/11, PHI accounted for 14.6% of total health expenditure. Compared to other financing sources such as out-of-pocket household expenditure, health insurance is a relatively stable financing source as it is less affected by economic cycles. Health insurance has been undergoing major growth as a financing source, especially individually-purchased PHI, the contribution of which to total health expenditure rose markedly by an average of 17% per annum from 1989/90 to 2010/11 (Table 1.1). Statistics from the 2011 Thematic Household Survey (THS) conducted by the C&SD shows that around 2.79 million people were covered by PHI. Among them, about 2.00 million (about 30% of Hong Kong s population) were covered by indemnity hospital insurance, including 1.30 million with individually-purchased policies only, 0.47 million with employer-provided medical benefits only, and 0.23 million with both individually-purchased policies and employer-provided medical benefits. Table 1.1 Total Health Expenditure by Financing Source, 1989/90 2010/11 ($ million) 1989/90 1999/00 2008/09 2009/10 2010/11 Average Annual Change 1989/90 to 2010/11 Government 7,749 35,997 41,257 43,868 45,491 +8.8% PHI 2,315 8,108 11,847 12,636 13,627 +8.8% (a) Individuallypurchased PHI (b) Employerprovided PHI 263 2,374 5,417 6,041 6,682 +16.7% 2,051 5,734 6,430 6,595 6,945 +6.0% Out-of-pocket 9,212 21,358 29,032 30,264 32,685 +6.2% Others 370 597 1,557 1,301 1,631 +7.3% Total 19,645 66,060 83,693 88,069 93,433 +7.7% Source: Hong Kong s Domestic Health Accounts 1989/90 2010/11 31
1.14. According to the 2011 THS, among those who were covered by PHI, about 54% of their local hospital admissions pertained to the public sector. There can be a number of reasons for this phenomenon. Apart from emergency cases and cases requiring inter-disciplinary care, which are usually treated at public hospitals, patients may hesitate to choose private hospitals for receiving treatment due to uncertainty about the adequacy of their insurance protection for covering private hospital charges, and hence whether and by how much outof-pocket expenses are required to fill the shortfall. Another deterring factor is the uncertainty over whether the hospitalisation expenses are claimable due to difficulties encountered by some policyholders 1 in comprehending the insurance policy terms and conditions, which may vary considerably from one insurer to another and from one product to another. Some policyholders may also be worried about the possibility of being re-underwritten by insurers upon policy renewal (which might lead to significant increase in the premium required to maintain cover) after making claims. 1.15. The above demonstrates that, with enhanced quality and certainty of insurance protection, consumers would have greater confidence in using health insurance and private healthcare services. As a result, health insurance can play a more significant role in supplementing the financing of Hong Kong s health expenditure and supporting the dualtrack healthcare system. SECOND STAGE PUBLIC CONSULTATION ON HEALTHCARE REFORM: HEALTH PROTECTION SCHEME (SECOND STAGE CONSULTATION) 1.16. Against this backdrop, we put forth the Health Protection Scheme (HPS) in the Second Stage Consultation My Health, My Choice conducted from October 2010 to January 2011. The HPS is a voluntary, government-regulated PHI scheme meant to complement the public healthcare system. Its objective is to provide an alternative to those who are able and willing to use private healthcare services by enhancing the quality of health insurance in the market. In doing so, the HPS could facilitate a greater use of private healthcare services as an alternative to public services, thereby better enabling the public sector to focus on providing services in its target areas, and indirectly relieving the pressure on the public healthcare system. 1.17. The HPS is not designed as a total solution to the challenges faced by our healthcare system, but one of the turning knobs for adjusting the balance of the public-private healthcare sectors, together with other turning knobs such as public-private partnership, the electronic health record platform, and development of public and private healthcare facilities. By providing a choice to those who are willing and able to afford private healthcare services 1 In this Consultation Document, policyholder(s) generally includes all person(s) insured under the same policy. 32
through insurance, resources in the private sector can be better utilised to meet community needs, particularly the more routine procedures that can be readily performed in the private sector. 1.18. Under the HPS, insurers would offer health insurance products providing the policyholders with benefit coverage and reimbursement levels that would enable them to access general ward class of private healthcare services. A number of key features designed to enhance the accessibility, quality and transparency of health insurance were proposed for HPS products, including the following (a) no turn-away of subscribers and guaranteed renewal for life; (b) publish age-banded premiums subject to adjustment guidelines; (c) cover pre-existing medical conditions subject to a standard waiting period and timelimited reimbursement limits; (d) cap premium plus high-risk loading at 3x published premium; (e) make higher risk groups insurable with High-Risk Pool reinsurance; (f) offer no-claim discount up to 30% of published premiums; (g) insurance plans portable between insurers and on leaving employment; (h) transparent insurance costs including claims and expenses; (i) standardised health insurance policy terms and definitions; and (j) Government regulated health insurance claims arbitration mechanism. 1.19. The Second Stage Consultation revealed broad-based community support for the Government s healthcare reform direction: a strengthened public healthcare sector as the core, complemented by a competitive and vibrant private healthcare sector. Many considered the HPS a positive step forward to enhancing the long-term sustainability of our healthcare system, and supported the introduction of the HPS to provide value-for-money choices to the community. 33
TAKING FORWARD THE HPS Working Group and Consultative Group 1.20. Based on the outcomes of the Second Stage Consultation, we set up a Working Group and a Consultative Group on Health Protection Scheme under the HMDAC in January 2012 to formulate detailed proposals for the HPS. The Working Group was tasked to tender recommendations on matters concerning the implementation of the HPS, including supervisory and institutional frameworks, measures aiming to enhance the viability and mitigate potential risks of the HPS, key components of Standard Plan under the HPS, rules and mechanism in support of the operation of the HPS, as well as options of financial incentives or public subsidy to support the implementation of the HPS. The Working Group was supported by the Consultative Group, which collected views and suggestions from the wider community and passed them to the Working Group for reference and consideration. Members of the Working Group and Consultative Group came from a wide range of backgrounds, including the healthcare and medical sector, the insurance sector, employers, the civil society and the academic sector. The membership and terms of reference of the Working Group and Consultative Group are at Appendix A. Consultancy Study 1.21. To provide professional and technical support to the Working Group and Consultative Group, we commissioned a Consultant 2 to conduct a study on the HPS, including performing a comprehensive review, survey and analysis of the current market situation of health insurance in Hong Kong; proposing a feasible, sound and detailed design for implementing the HPS; and carrying out projections on the short to long-term implications of the HPS on the healthcare system. 1.22. In conducting the study, the Consultant collected or made use of data in both the healthcare service and health insurance sectors, including data of the C&SD, Department of Health, HA, Office of the Commissioner of Insurance, the Hong Kong Federation of Insurers, individual insurers and private healthcare service providers. Apart from studying the local markets, the Consultant also made reference to overseas experience, including conducting in-depth study on five overseas jurisdictions with a significant PHI market, namely Australia, Ireland, the Netherlands, Switzerland and the United States. 1.23. To better gauge consumer response to the HPS, the Consultant conducted a household survey in private housing estates from all districts in Hong Kong with a view to understanding consumer preference towards health insurance products. The survey result shows that more than half of the respondents considered a number of HPS features 2 PricewaterhouseCoopers Advisory Services Limited. 34
attractive, such as guaranteed renewal for life; coverage of advanced diagnostic imaging tests, ambulatory procedures, chemotherapy and radiotherapy; and government regulation of product design. Around 70% of respondents (with or without indemnity hospital insurance coverage) indicated that they were willing to consider purchasing or migrating from their existing plans to the illustrative HPS Standard Plan. A summary report of the consumer survey is at Appendix B for reference. The consumer survey was conducted via face-to-face household interviews from May to August 2013. The survey was targeted at middle-income individuals who were considered more likely to subscribe to HPS products. The key objective was to test their willingness-to-pay and preference towards the key features of the HPS Standard Plan. A total of 1 109 households and 1 936 individual respondents were successfully interviewed. 1.24. The Consultant presented its findings, analyses and recommendations at various meetings of the Working Group and Consultative Group for members discussion and deliberation. An executive summary of the consultancy report is at Appendix C for reference. Subcommittee on Health Protection Scheme of Legislative Council Panel on Health Services 1.25. To study the various issues relating to the HPS, members of the Legislative Council Panel on Health Services appointed the Subcommittee on Health Protection Scheme under the Panel in August 2011. Among other issues, the Subcommittee deliberated in detail on the following areas (a) manpower planning and supply for the sustainable development of the healthcare system; (b) healthcare services development; (c) supervisory framework for health insurance and healthcare service markets; (d) design and operation of the HPS; (e) role of health insurance in financing healthcare services; and (f) utilisation of Government subsidy. 35
1.26. The Subcommittee held a total of six meetings during the fourth legislative term (2008-2012). It rendered valuable comments and detailed recommendations to the Administration on the above issues in its report 3 issued on 4 July 2012. In the current legislative term (2012-2016), the Subcommittee has continued to follow up on various issues relating to the HPS in close liaison with the Administration. We have duly considered and incorporated their views in our proposals as appropriate. LATEST PROPOSAL: VOLUNTARY HEALTH INSURANCE SCHEME 1.27. Based on the deliberations of the Working Group and recommendations by the Consultant, and taking into account views from relevant stakeholders, we have worked out the latest proposals for the HPS as elaborated in the following Chapters. 1.28. After taking into account the objectives of the HPS and the experience of the local market and overseas jurisdictions, our latest proposal is to regulate all individual indemnity hospital insurance in the local market. In selling and/or effecting individual indemnity hospital insurance, insurers must comply with the Minimum Requirements prescribed by the Government. Our considerations for proposing the Minimum Requirements, as well as details of the Minimum Requirements, are set out in Chapters 2 and 3. 1.29. As the HPS is intended as a supplementary financing arrangement, we propose to rename the scheme to Voluntary Health Insurance Scheme (VHIS) to better reflect its objectives and nature. VOTE OF THANKS 1.30. We would like to take the opportunity to express our gratitude to all members of the community for their suggestions and support during the formulation of detailed proposals for the HPS/VHIS. We have received valuable comments and suggestions from relevant stakeholders and the community at large, including the Working Group and Consultative Group on Health Protection Scheme, the Subcommittee on Health Protection Scheme of the Legislative Council Panel on Health Services, Legislative Council members, Consumer Council and consumer representatives, representatives of the insurance industry (including the Hong Kong Federation of Insurers, agents and brokers associations), representatives of healthcare service providers (including the Hong Kong Academy of Medicine, Hong Kong Medical Association, Medical Council of Hong Kong, HA, Hong Kong Private Hospitals Association, Hong Kong Doctors Union, pharmacy associations), academics, trade, commerce and industrial organisations, patient groups, social welfare organisations, etc. Their contribution and advice, which we have duly considered and incorporated into our recommendations as appropriate, have been invaluable for us in formulating the HPS/VHIS proposals as well as taking forward this public consultation exercise. 3 Available online at http://www.legco.gov.hk/yr11-12/english/panels/hs/hs_hps/reports/hs_hpscb2-2527-e.pdf. 36